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May 23, 2013

How to Talk Risk Without Scaring Your Clients

Scott West of Invesco shares his ‘3 P’s for Preventing the Great Escape’ at Curian conference in Chicago

“We’re persuaders, it’s what we do, and persuasion is nothing more than the transfer of confidence.”

“We’ve been working on it for the past for the past 18 months, and it’s largest study of its kind in ever in financial services,” West said.

He began by noting the various ways the financial services companies inform people of risk, and their marketing efforts in particular, before turning to disclosure.

"We take this small print, this mice type, and we’ve now found ways to make it even smaller, which does nothing more than scare clients,” he said.

West added that although advisors like risk, “after all, there is no alpha without beta,” you could substitute the word risk with radioactive, and “that’s how your clients feel about it.”

“How well would it work if you told them you’re trying to limit their exposure to radioactivity?” he rhetorically asked before answering, “Not well.”

He said that risk is not just about what you do, but what you don’t do; it’s an act of omission as well as commission.

“Do you have a client that might not be doing anything at the moment?” he asked to emphasize his point.

He then moved to a specific discussion of language, noting that “words matter” and listed some words that work better than others with clients.

“Use personalized versus customized,” he began. “The latter is overused and has been hijacked. Clients think, “What, you’ll customize my plan just like you’ll customize every other client’s plan?”

He also argued that advisors should use “comfort zone” versus “risk tolerance,” because the latter is about how much pain the client can stand.

Lastly, he said clients respond better to “steady growth” than “consistency" or "consistent performance."

“During the crisis in 2008, they realized they didn’t lose it in and day, so they won’t make it back in a day. They just want to see that it’s growing and it’s steady."

He then played an amusing video (in which he starred) to illustrate what would happen it a doctor spoke to a patient in the same manner most advisors speak to their clients.

How comfortable would you feel if a doctor came in and immediately started talking about how he got started in medicine, his credentials, his practice’s growth and didn’t ask the patient a word about themselves? He would then turned to the dire risks of the surgery, tell the patient he will nonetheless do the surgery, and will then cut them loose for a follow-up in six months. Even though the doctor in the video was capable, had the necessary expertise and was confident, the patient would still be scared to death.

The conclusion?

“Facts before framing equals fear. If we don’t create a comfortable environment, our clients will be planning their escape. They’ll give you the classic, ‘We’ll think about it,’ or ‘I’ll have to look it over’ and never come back. We cannot fight fear with facts."

He then said the key question is how do advisors make risks “motivational, understandable and actionable for our clients? And those words are in a defined order. You can’t do one ahead of the other and expect to succeed.”

He noted that most Americans didn’t care about debt until term ‘fiscal cliff” was introduced.

“We have to take an institutional language and make it understandable to clients. Words matter. It’s not what you say, it’s what they hear. On the way here, I said the audience will be unattractively avoided to me,” he said to laughter.

He ended with his “Three Ps for Preventing the Great Escape.”

Make it personal—It’s not about you, it’s about them

Have a clear purpose and make the benefits clear—“This sounds like selling 101, but so many still struggle with this. Too often, we cover features, not benefits.”

Position—“When talking to clients, use 'you' 2.5 times more than 'I.' the formula, we’ve discovered, is really that simple."

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